We summarise the key legislative changes planned by government relating to insolvency and corporate governance and focus on what they mean for investors, including the private equity community

In line with measures announced in the 2018 Federal Budget, the government has released a package of proposed insolvency reforms: Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2018, Insolvency Practice Rules (Corporations) Amendment (Restricting Related Creditor Voting Rights) Rules 2018 and accompanying explanatory material, for consultation. Consultation concludes on 27 September.

The Patent Office's decision in McCann as Liquidator of ACN 137 233 919 v Molnar [2017] APO 30 explores interesting territory for liquidators and insolvency professionals – the intersection of insolvency and intellectual property.

On 2 October 2015, a company which had gone into liquidation, Sax, filed a request to amend the ownership of a patent application from itself to its sole director, Ms Molnar, pursuant to a sale agreement by which Sax had sold all of its intellectual property to Ms Molnar for $55,000. The Patent Office recorded the amendment on 16 October 2015.

Some of the most far-reaching Australian insolvency law changes are taking effect. These new laws will restrict the enforceability of a whole class of common clauses in contracts –so called 'ipso facto' clauses.

In this edition of FINSights, we explore what these changes mean for financiers, and outline key tips and issues they should consider as we move forward into the new regime.

What are ipso facto clauses?

Introduction

In late 2015, the High Court handed down its decision in Commissioner of Taxation v Australian Building Systems Pty Ltd (in liq) [2015] HCA 48. The High Court held (by a majority of 3:2) that, in the absence of an assessment, a liquidator is not required to retain funds from asset sale proceeds in order to meet a tax liability which could become payable as a result of a capital gain made on the sale. In doing so, the majority of the High Court affirmed the decision of the Full Federal Court and provided long awaited guidance to liquidators, receivers and administrators.

On 28 March 2017, the Australian Government announced its proposals to reform the law relating to insolvent trading, and the right to terminate contracts based on insolvency ('ipso facto clauses'). MinterEllison made a detailed submission on the proposals which can be found here.

The rules on contingent assets are broadly as for last year but there are developments to note. Recertification can take longer than expected if there have been changes in relation to an asset.

Trustees and sponsors should be preparing for the recertification of contingent assets that are to remain in place with a view to levy advantage for the 2018/19 year. If there have been changes in relation to a contingent asset, recertification may take materially longer than otherwise.

With residential leasehold law in the spotlight, landlords should be aware of a recent court case which focused upon the method of calculating the premium payable for a residential lease extension.

What is a freezing order?

The purpose of a freezing order is to preserve the defendant's assets until judgment can be enforced. It operates by granting an injunction prohibiting the defendant (or anyone on his behalf) from disposing of identified assets. Legally, it does not operate as security over the assets.

Taylor v Van Dutch Marine Holding Ltd